JON SOPEL: I'm joined now by the Shadow Chancellor, George Osborne. Thanks very much for being with us Mr Osborne. Harriet Harman said this morning, Sir Fred will not be getting his - he will not be better off by six hundred and fifty thousand pounds a year. Do you welcome that?

GEORGE OSBORNE: Well I don't think Fred Goodwin should be receiving a, actually, close to seven hundred thousand pound a year pension, for basically being the Chief Executive who ran RBS in to the ground, with the help of others, but nevertheless, left the bank in a position, where we the taxpayer, are having to spend billions of pounds baling it out. So I don't think he should take that pension, I think he should voluntarily give it up, but frankly, Harriet Harman, expressing this synthetic anger now in March, is, is hopeless because they had a chance, the government, back in October to stop it.

JON SOPEL: We'll come on to that in a moment, but she said it might be enforceable, this is his contract, Sir Fred's contract and the deal that gives him the pension, 'it might be enforceable in a court of law this contract, but it's not enforceable in the court of public opinion and that's where the government steps in.' What do you understand by that?

GEORGE OSBORNE: Well I'm not sure I know what Harriet Harman is talking about at all. I mean she is herself a lawyer, and the fact is the government signed off on Fred Goodwin's pension deal. They had the chance to stop it, but that was back in October. Now, of course they should look at all the legal avenues that exist to try and make sure that not all of this seven hundred thousand pounds is paid to Fred Goodwin, but this is a bit like trying to bolt the stable door, after the horse has itself bolted. I mean this is, you know, they had the opportunity, Paul Myners, the Government Minister, had the opportunity. He was told of the pension arrangements, we are told, and they didn't stop it. So frankly, the government has been totally incompetent on this issue, and to say now they're going to do something about the pension, begs the question, why didn't they do something about Fred Goodwin's pension, when they had the chance.

JON SOPEL: But if they introduce legislation, because that's what seems to be the implication, if they were to introduce legislation to retrospectively take this pension pot off him, would you support that.

GEORGE OSBORNE: Well I will support any legal measure to try and get this pension back, although as I say, they should have done all this before signing off on the pension- they should have - you know, we'd be in a much better place if, back in October, they had stopped this pension being awarded. I mean they were responsible, the government are trying to distract attention from their central role in the awarding of Fred Goodwin's pension and the arrangements around the departure of Fred Goodwin and other Board members in October. Paul Myners, who is Gordon Brown's friend, who himself sat on the Nat West Board signed off on the arrangements for RBS in the autumn. It's no good now, trying to distract everyone's attention with this synthetic anger. They had their chance to stop it and they incompetently failed to do that.

JON SOPEL: Well if you're saying that they were incompetent, should Lord Myners go?

GEORGE OSBORNE: Well I think Lord Myners is in a very difficult position. I think he should be given a chance now to explain exactly who knew what when. Why his account of events differs from Fred Goodwin's account. But if he can't give a satisfactory explanation of why he signed off on a six hundred and fifty odd thousand pound pension, for Fred Goodwin, then I can't see how he can remain a government minister.

JON SOPEL: So, as things stand, his career is hanging by a thread in your judgment.

GEORGE: I think his career is hanging by a thread because he needs to give an explanation of why he apparently signed off on Fred Goodwin's pension and why his account of events differs so markedly from Fred Goodwin's.

JON SOPEL: You colleague on the Treasury Select Committee, Michael Fallon, Conservative MP, has already made that judgment, he said he should go now.

GEORGE OSBORNE: Well I think, as I say, I'm a - I think it's fair to give Lord Myners a chance to give us an explanation, we've not really heard from him except in that letter that he sent to Fred Goodwin. He could go before the Treasury Select Committee for example, which I know is investigating these issues. Give us an explanation, cos at the moment, his explanation does not tally with Sir Fred Goodwin's and we are in this position where it appears as if, Gordon Brown's City Minister, signed off on Fred Goodwin's pension, which means that all the things said by Harriet Harman or Gordon Brown, are frankly synthetic.

JON SOPEL: Should the same apply to Ministers? Where a Minister fails, I don't know, you could go back over some of the policies of the last Tory administration, Rail privatisation. Should the Minister who was responsible for that, which was seen as a bit of a failure, have their pension pot slashed? If this is the kind of road we're going down now.

GEORGE OSBORNE: Well, I think when it comes to rewards for failure, in politics and Gordon Brown, that's a phrase Gordon Brown uses, you know the ultimate sanction is the General Election. You just get kicked out of office. I would love there to be an election, sooner than there's likely to be, so that people can pass their verdict on whether Gordon Brown should be rewarded for failure. But I don't think, you know in general … (interjection)

JON SOPEL: Fred Goodwin has been, he's out, he's lost his job …

ALL TOGETHER

GEORGE OSBORNE: … the very specific issue with Fred Goodwin was it appears as if his pension pot was maxed out literally in the days before he was asked to leave RBS. So it was a, you know, the old Board of RBS with apparently the connivance of the government, took, did some discretionary things to give Fred Goodwin a bigger pension pot than he should have had.

JON SOPEL: What about using the law then to say that actually, if you have been in charge of an administration, I'm not talking about - maybe retrospectively changing the law on someone's pension pot, but making a sort of sense of corporate responsibility and also that it becomes a criminal act is the bank or the enterprise that you work for fails and leads to unemployment like this.

GEORGE OSBORNE: Well I think we should overhaul the system of financial regulation, by all means. And I also think, I mean you mentioned criminal sanctions, I think this country is woefully inadequate at pursuing the criminal sanctions that already exist with financial crime and financial fraud. At the moment we've got the Financial Services Authority, that is supposed to take the lead on prosecuting financial fraud, but in Britain, unlike in America, you never see someone in handcuffs who's been guilty of a financial fraud. There are almost no prosecutions and I would now take away from the Financial Services Authority, that responsibility for prosecuting financial fraud. I don't think they've done it well. I think we need now, a single strong body, associated with for example the Serious Fraud Office, that is going to prosecute financial crime, because it's one thing to fine someone for a breach of a regulation, it's another thing to say, we're also going to use the criminal law and you might go to jail and that has not happened in recent years in Britain and I think it should.

JON SOPEL: Explain to me this Mr Osborne, why is it that the only solution to the banks is part nationalization but the only solution for royal mail is part privatization, which you support.

GEORGE OSBORNE: Well on the - I mean there are two separate issues. On the banks, because they were on the verge of collapse, there had to be an injection of public money and of course there are all sorts of conditions I would like attached to that public money, so that they actually … (interjection)

ALL TOGETHER

JON SOPEL: … on the Post Office …

GEORGE OSBORNE: On the Post Office or on the Royal Mail, I was about to say, on the Royal Mail, there, this is an organization that has been in the public sector, been in effect nationalised, for you know, for ever, and what is needed is private investment and what I want the government to know, what I want Peter Mandelson to know and Gordon Brown to know is that they will have the support of the Conservative Party, if they pursue the proposals, set out in the Hooper Review, that of course, we will scrutinize the decisions they take. But the overall direction is correct and they must not bow to their rebels and their Union paymasters. Peter Mandelson is doing the right thing, he should ignore the voices off in Cabinet. He will have the Conservative support to do the right thing.

JON SOPEL: Why not then, if partial privatisation is the right thing, go the whole hog. Would you not privatise Royal Mail?

GEORGE OSBORNE: Well I think, you know, the Hooper Review, took a good long look at this, came up with a very sensible proposal, that you get, you leave …

BOTH TOGETHER

GEORGE OSBORNE: Well I think we should go with the proposals that are on the table. I mean, you know I, we have commissioned a review, a lot of work has been done. There is an option there now to lever in private money.

JON SOPEL: You could be a government in waiting, you might have to take these decisions. Could you envisage going further than that?

GEORGE OSBORNE: I think, well I think it would be much better, since I do expect to be in government… I hope… given that… hoping the British people will vote for us, that we deal with this now, deal with the Royal Mail issue now. The next Conservative government is going to have an awful lot on its plate and I'd much rather the Royal Mail issue was dealt with now, which is why, as I say, if Peter Mandelson gets on and does the right thing, he will have our support. I mean I thought it was very striking, you know Harriet Harman, today was very luke-warm in her support. She was not, she couldn't be pressed to say, I actually back these proposals. So there's a lot of division in the Cabinet, and - but, it's important to know that the Conservative Party will do the right thing, we won't just be the opposition party for the sake of it, but we will support the part privatisation of Royal Mail.

JON SOPEL: You talked about all that there would be to do when you came in to government and we've heard the Head of the Audit Commission this week, taking about people are living in cloud cuckoo land if they think that they can avoid massive spending cuts and big tax increases, where are your big tax increases going to be.

GEORGE OSBORNE: Well I have been warning for now, more than a year, that there was a serious problem with the spending plans and the public expenditure proposals put forward by the government and that in the future there would have to be spending restraint. In recent months, we've come of Labour's spending plans explicitly. We have said that they are going to have to be tighter. So I think the Conservative Party is engaging with people on this issue and telling people some hard truths about, about the fact that we are carrying a massive budget deficit and that whilst Gordon Brown thinks this is a problem that can be kicked in to some, you know, impossible future, we are actually engaging with it now.

JON SOPEL: And one of your very specific proposals is on Inheritance Tax, raising it to a million pounds, two million for a couple. Is that an important priority, will that be, can you guarantee in the next Manifesto, when you've got to make these spending cuts and difficult decisions as you talked about.

GEORGE OSBORNE: We stick to the commitments we made on Inheritance Tax.

JON SOPEL: It will be in the Manifesto.

GEORGE OSBORNE: Because it is funded by the way, by tougher taxation of non-domiciles.

JON SOPEL: Who have left the country.

GEORGE OSBORNE: Well, they haven't all left the country frankly. You know, there is still plenty of scope for a proper taxation of non-doms, which by the way, I think would ultimately be a better deal for them and to help people who have saved for their retirement.

JON SOPEL: I just want to be clear, will this be in the Manifesto?

GEORGE OSBORNE: What the proposal on inheritance? Absolutely, of course. But let me make this point - whether it is helping people who have saved something during their life and want to leave something for their children, whether it is taking basic rate taxpayers out of savings, whether it is increasing the tax allowance for pensioners, all of these things, speak to a single theme, which is moving from a society based on debt, to a society based on saving. Moving from a society of irresponsible government borrowing and irresponsible borrowing practices more widely, to a society that is that is rooted in responsibility, that saves for its future, that lives within its means - that is the big Conservative argument and that is the big Conservative theme.

JON SOPEL: I just want to ask you a word about your leader, because it's obviously been a hugely traumatic week for him. So much of Westminster politics is characterized by yah-boo politics, won't it all seem a bit meaningless to come back to that sort of atmosphere after what you've been through.

GEORGE OSBORNE: Well, you know, obviously everyone was deeply shocked by Ivan's death and I've spoken to David Cameron a couple of times since and you know, he and his family are coping with it and they've a very strong family. I think he has been, I know from the conversations I had, very, very moved both by the very large numbers of letters and emails and so on he's received from members of the public, but also actually the way Parliament and the political parties handled the issue last Wednesday; so I think you know, the British political system showed its ability to express massive sympathy with the Cameron family and I think also, the fact that there's been this huge outpouring from the public, including many people, who themselves have disabled children, or who have lived with the bereavement, that comes with the death of a child. You know, those, all those things have helped this family in a very, very difficult time and I think that they will come through it because they are strong people and you know, of course, I wish them, as a great friend, very well but I know the British public wish them well in this extremely difficult time.

JON SOPEL: George Osborne, thank you very much for being with us. Thank you.

END OF INTERVIEW

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NB:These transcripts were typed from a recording and not copied from original scripts.

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The Politics Show Sunday 1 March 2009 at 12:00 GMT on BBC One.

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